Monthly Disciplinary Actions - January 2009

On Appeal, Individual Disciplined for Sales Practice Violations
Gregory W. Gray, Jr.
Hearing Board Decision: 08-003
07 Jan 2009
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Case Note
Violated NYSE Rule 476(a)(6) by effecting unauthorized trades in two customer accounts; violated NYSE Rule 476(a)(7) by threatening and/or harassing three complaining customers and/or their family members.† Censure and three-year bar.
Case Summary
On appeal, Gregory W. Gray, Jr. of Chicago, Illinois, a former registered representative, was found guilty of sales practice violations.
  • An NYSE hearing panel found that Gray violated NYSE Rule 476(a)(6) by effecting unauthorized trades in two customer accounts; violated NYSE Rule 476(a)(7) by threatening and/or harassing three complaining customers and/or their family members. Two of the people harassed and threatened were 82 and 70 years old.

The NYSE imposed a penalty of a censure and three-year bar. On appeal, the NYSE Regulation Board of Directors affirmed the decision.

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Individual Disciplined for Outside Business Activity
Steven Lloyd Cronin
Hearing Board Decision: 08-047
07 Jan 2009
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Case Note
Violated NYSE Rule 346(b) by engaging in outside business activity by entering into profit-sharing arrangement with third party without making written request and receiving prior written consent of member organization employer; violated NYSE Rule 476(a)(4) by making material misstatements to NYSE; violated NYSE Rule 476(a)(6) by engaging in outside business without approval of member organization employer, making material misstatements to Exchange and making material misstatements to member organization employer about business relationship.  Consent to censure, four-month suspension, and $50,000 fine.
Case Summary
Steven Lloyd Cronin of Great Neck, New York,  an institutional sales representative, consented without admitting or denying guilt to findings of outside business activities, among other things.
  • An NYSE hearing officer found that between January 2003 and March 2004 (the “relevant period”), while employed at Baseline Securities Inc. and LaBranche Financial Services, Inc. (“ LFSI”), Cronin engaged in an undisclosed outside business and profit- sharing arrangement with a third party, whereby Cronin would refer customers to the third party for NASDAQ trading in exchange for 50 percent of the after expense profits. During the relevant period, Cronin received monthly payments of between $60,000 and $100,000. Cronin never made a written request or received the prior written approval of LSFI to engage in this profit-sharing arrangement. When the profit-sharing arrangement ended, Cronin received a payment of $950,000 as compensation for lost profits. Subsequently, in connection with an NYSE Enforcement investigation, Cronin was asked to provide testimony concerning his outside business activities. Cronin made material misstatements in testimony to NYSE Enforcement about the profit-sharing arrangement and about the $950,000 he received. Further, in October 2004 Cronin made misstatements to his member firm employer, LFSI, on a questionnaire concerning his business relationship with another individual. 

The NYSE imposed a penalty of a censure, $50,000 fine, and four-month suspension.  Cronin consented to the penalty.

 

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Individual Disciplined for Engaging in Deceptive Practices
Robert D. Zielke, Jr.
Hearing Board Decision: 08-048
07 Jan 2009
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Case Note
Violated NYSE Rule 476(a)(6) by engaging in deceptive practices with respect to business activities involving the trading of mutual funds. Consent to censure and three-year bar.
Case Summary
Robert D. Zielke, Jr., of Chicago, Illinois, a former registered representative, consented without admitting or denying†guilt to findings of engaging in deceptive practices.
  • An NYSE hearing officer found that from approximately 2001 through 2003, Zielke actively facilitated improper mutual fund trading by using a variety of deceptive methods to help a customer evade detection by mutual funds that did not want market timing business.
The NYSE imposed a penalty of a censure and a three-year bar. Zielke consented to the penalty.
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Individual Disciplined for Sales Practice Violations
John Henry Rabon, III
Hearing Board Decision: 08-049
07 Jan 2009
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Case Note
ViolatedNYSE Rule 476(a)(6) by (a) effecting trades in accounts of customers that†were unsuitable and (b) effecting trades in accounts of customers that† were excessive in size and/or frequency; violated NYSE Rule 408(a) by exercising discretionary power in accounts of customers of his employer without first obtaining written authorization from customer.†Consent to censure and one-year bar.
Case Summary
John Henry Rabon, III, of Fort Mills, South Carolina,  a former registered representative, consented without admitting or denying guilt to findings of sales practice violations.
  • An NYSE hearing officer found that during 2004 and 2005 (the “Relevant Period”) Rabon engaged in conduct inconsistent with just and equitable principles of trade by effecting violative trades in a total of four customer accounts of his member firm employer. The trading was excessive in three of the accounts and was conducted pursuant to technical trading strategies that were inappropriate for the customers’ moderate risk tolerances. Turnover ratios for a 12-month period ending June 2005 for the accounts were as high as 15.6. 
  • The trading was unsuitable in all four customer accounts in that, contrary to these moderate risk tolerances, the customers were charged commissions for short-term transactions that often involved the purchase and sale of a stock within the same day or within a few days or weeks. In some instances, the customer engaged in almost 50 transactions per month. Additionally, in one account, the trades were unsuitable in that the customer’s positions were overly concentrated in stocks that had a relatively small capitalization. Another account involved the excessive use of margin.
  • Rabon also violated NYSE Rule 408(a) by exercising discretionary power in the accounts of three customers without first obtaining written authorization from them. Although Rabon would generally speak to a customer prior to purchasing stock, he determined the timing, price, and amount of the purchases. 
The NYSE imposed a penalty of a censure and a one-year bar. Rabon consented to the penalty.
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NYSE AMEX DISCIPLINARY ACTION
NYSE Amex Member Firm Disciplined for Options Trading Violations
Trinity Derivatives Group, LLC
Hearing Board Decision: ALT-08-01
07 Jan 2009
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Case Note
ViolatedAMEX Rule 155 (made applicable to options by AMEX Rule 950) by failing to give precedence to orders entrusted to it as agent in options before executing at same price purchases or sales in those multiple options for accounts in which Firm and or its specialists had an interest.†Consent to censure and $35,000 fine.
Case Summary
Trinity Derivatives Group, LLC, of New York, New York , an NYSE Alternext US LLC member firm, consented, without admitting or denying guilt, to findings†of options trading head violations.
  • An NYSE Hearing Officer found that from October 2004 through November 2005 (the ďRelevant PeriodĒ), on certain occasions, Trinity, and/or specialists employed by the Firm, violated their respective agency obligations by failing to give precedence to orders entrusted to them.†Orders were transmitted to the Floor of the AMEX electronically through the AMEX New Trading Environment (ANTE) electronic options trading platform and entrusted to Trinity, and/or its specialists, as agents.†On certain occasions during the Relevant Period, Trinity and/or its specialists executed transactions in options of which they were registered for accounts in which they had an interest before executing at the same price any purchase or sale in the same options for accounts in which they were entrusted as agent.

The NYSE imposed a penalty of a censure and $35,000 fine.†Trinity Derivatives Group, LLC, consented to the penalty.

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NYSE ARCA EQUITIES DISCIPLINARY ACTION
Firm Disciplined for Prearranged Trading
Schonfeld Securities, LLC
Hearing Board Decision: 08-AE-04
07 Jan 2009
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Case Note
Violated NYSE Arca Equities Rule 6.15(b) by engaging in prearranged trading; violated NYSE Arca Equities Rule 6.2(b) by engaging in prearranged trading for the purpose of increasing its net capital position in an attempt to remain in net capital compliance; violated Securities Exchange Act of 1934 Rules 15c3-1 and 17a-11 and NYSE Arca Equities Rule 4.1 by violating its required minimum net capital level on 25 days, by failing to promptly notify its regulators about the net capital violations, and by inaccurately calculating its net capital positions; violated Exchange Act Section 17(a)(1), and Rules 17a-3 and 17a-4 thereunder, as well as NYSE Arca Equities Rule 2.24, by inaccurately recording on the Firmís books the prearranged transactions without disclosing the true nature of the transactions; violated NYSE Arca Equities Rules 7.38(c)(3), 9.2(a) and 9.2(b)(4) by entering customer odd lot orders that should have been aggregated into round lots; and violated NYSE Arca Equities Rule 6.18(a) by failing to adequately supervise its personnel.
Case Summary
Schonfeld Securities, LLC, of Jericho, New York, an NYSE ARCA Equity Trading Permit Holder, consented without admitting or denying guilt to findings of trading violations and other financial and operational deficiencies.  
  • A hearing officer found that the Firm, with the knowledge of Steven B. Schonfeld, the Firm’s chairman and principal, entered and executed prearranged round trip securities transactions (buy/sell and then sell/buy reversing trades) throughout the period January to March 2005. These transactions had been prearranged with entities related to the Firm. These trades were prearranged for the purpose of increasing the Firm’s net capital position in an attempt to enable the Firm to remain in net capital compliance. The Firm recorded the prearranged transactions without disclosing the nature of the transactions, namely, that the transactions would be reversed in a few days. Despite these prearranged transactions, however, the Firm still fell short of its net capital requirements on 25 days between January and March 2005. The Firm did not report any of these net capital deficiencies to the U.S. Securities and Exchange Commission, NYSE Arca Equities, or the Firm’s Designated Examination Authority, which at the time was NASD.
  • Additionally, between June 2005 and January 2007, the Firm entered for execution on behalf of several Firm customers approximately 910 odd lot orders totaling approximately 32,871 shares that should have been aggregated into round lots.
  • Finally, the Firm failed to adequately supervise its personnel and business operations to maintain compliance with NYSE Arca Equities Rules and federal securities laws.

NYSE Arca Equities imposed a penalty of a censure and $900,000 fine. Schonfeld Securities consented to the penalty.

See related press release for Steven B. Schonfeld (Hearing Board Decision 08-AE-05), also issued today.

 

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NYSE ARCA EQUITIES DISCIPLINARY ACTION
Chairman and Principal Fined
Steven B. Schonfeld
Hearing Board Decision: 08-AE-05
07 Jan 2009
Summary Back to Top
Case Note
Violated NYSE Arca Equities Rule 6.15(b) by allowing Schonfeld Securities to engage in prearranged trading; violated NYSE Arca Equities Rule 6.2(b) by allowing Schonfeld Securities to engage in prearranged trading for the purpose of increasing the firm's net capital position in an attempt to remain in net capital compliance; and violated NYSE Arca Equities Rule 6.18(a) by failing to adequately supervise certain activities of Schonfeld Securities pertaining to prearranged trading and net capital requirements.
Case Summary
Steven B. Schonfeld of Jericho, New York,† the Chairman and Principal of Schonfeld Securities, LLC, consented without admitting or denying guilt, to various findings of supervisory violations.
  • A hearing officer found that Schonfeld Securities, with the knowledge of Steven B. Schonfeld, the Firmís Chairman and Principal, entered and executed prearranged round trip securities transactions (buy/sell and then sell/buy reversing trades) throughout the period January to March 2005. These transactions had been prearranged with entities related to the Firm. The trades were prearranged for the purpose of increasing the Firmís net capital position in an attempt to enable the Firm to remain in net capital compliance.
  • Finally, Steven Schonfeld failed to adequately supervise the Firmís personnel and business operations to maintain compliance with NYSE Arca Equities Rules and federal securities laws relating to prearranged trades and net capital requirements.

NYSE Arca Equities imposed a penalty of a censure, $200,000 fine, suspension of 90 days from acting in a supervisory capacity, and an undertaking to retake and pass the Series 24 Examination in the event that he seeks to resume any supervisory role at the Firm or with another NYSE Arca firm.

See related press release for Schonfeld Securities, LLC (Hearing Board Decision 08-AE-04), also issued today.

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